FedEx shares drop despite earnings growth

Traders on Wall Street apparently were unimpressed by FedEx’s earnings beat, selling the stock down 6.4 percent from Monday’s closing price.    FedEx Corp. stock is taking a beating on Wall Street despite a strong earnings beat for the fourth quarter of the company’s fiscal 2018 year.
   The Memphis, Tenn.-based parcel and express carrier on Tuesday reported fourth-quarter adjusted earnings per share (EPS) of $5.91, up from $4.19 per share in Q4 FY2017 and beating consensus analyst expectations by $0.23 per share. Net income for the full year surged 52 percent to $4.57 billion as revenues rose 8.6 percent to $65.5 billion compared with the same 12-month period the previous year.
   Traders on Wall Street apparently were unimpressed, however, as FedEx shares have now fallen 6.4 percent since close of trading on Monday Shares closed at $247.90 on Thursday, and then fell further to around $244.50 by around noon on Friday.
   One potential reason for the selloff could be the fact that a huge chunk of the company’s impressive earnings growth in FY2018 resulted directly from changes in U.S. federal tax rates and not so-called “underlying” results.
   FedEx earnings were boosted an estimated $2.1 billion ($7.71 per share) in tax benefits during the last 12 months, including a $1.6 billion reduction in the company’s net U.S. deferred tax liability stemming from the December passage of the Tax and Jobs Act of 2017, which lowered the effective federal tax rate for U.S.-based corporations from 35 percent to 21 percent.
   Prior to the recent tumble, FedEx stock had been rising relatively steadily since hitting $229.48 in late March, its lowest price of the 2018 calendar year.
   The latest movement could also be attributed in part to a normal market correction, as shares had been on a major tear in the fourth quarter of 2017, jumping from $214.45 in mid-November to an all-time high of $274.32 on Jan. 19 on the back of surging seasonal e-commerce parcel volumes.
   In a customer advisory issued Thursday, Zacks Investment Research lowered its rating on FedEx stock from “buy” to “hold.”
   “Shares of FedEx have outperformed its industry and rival United Parcel Service in a year’s time,” Zacks analysts wrote in its analysis. “Ushering in further good news, the company reported better-than-expected earnings per share and revenues in the fourth quarter of fiscal 2018. Both metrics also improved year over year.
   “Results were aided by e-commerce growth and a buoyant U.S. economy. Additionally, higher shipping rates and volume growth are huge positives for FedEx. Meanwhile, lower tax rates are boosting the company’s bottom-line performance. We are also impressed by FedEx’s decision to reward shareholders through dividend payments and share buybacks.
   “However, high costs are hurting the bottom line,” the firm said. “Significant investments at the company’s Ground unit are pushing up costs as well. Capital expenses are estimated to be $5.6 billion for fiscal 2019. Trade war related fears are also weighing on FedEx.”